No. 266
Memorandum by H. P. Leverich of the Office of Eastern European Affairs to the Deputy Under Secretary of State (Murphy) 1
top secret


  • Wheat Assistance for Yugoslavia
[Page 528]

Representatives of State Department, FOA, Defense Department, Department of Agriculture, Bureau of the Budget, and the Office of Defense Mobilization, met this afternoon in the office of Mr. Butz, Assistant Secretary of Agriculture, at Mr. Butz’ request.

Mr. Leverich mentioned briefly the purpose of Mr. Murphy’s forthcoming trip to Belgrade, and emphasized the great importance of this negotiation with the Yugoslavs on Trieste. He explained that General Smith and Mr. Murphy were anxious to have a firm understanding for wheat which the latter could use, and, as regards the further tonnage to that being provided under the mutual security funds, General Smith’s preference was for Title II, as this would be most advantageous. It would involve an outright grant, and dinars deposited would go for uses similar to those in the mutual security program. Mr. Leverich mentioned that Mr. Murphy also needed the authority to agree in principle that we would assist the Yugoslavs in meeting their wheat needs over a three year period.

Mr. Butz said that, as to the source of the funds for wheat from ATDA, the USDA would prefer Title II, but that, in the face of FOA’s refusal to use Title II, if USDA used Title I, they intended to avoid setting a bad precedent and would insist on the use of the dinars in such a way that, consistent with the Congressional intent, would provide for maximum reimbursement to the US. (It appeared that FOA’s reason for preferring not to act under Title II was the thought that the Yugoslav people had the local currency in their possession, and, as the wheat would not be distributed as direct relief, the Yugoslav people ought to pay for the wheat. Otherwise the Yugoslav Government would get an outright handout of wheat and would also recover for itself the sales proceeds.) USDA proposed if Title I were used that the local currency be apportioned:

  • 60% to be on loan to Yugoslavia for economic development;
  • 25% for furnishing strategic materials to the US;
  • 5% to be used by the US to meet its local costs in Yugoslavia;
  • 10% for financing Yugoslav transport costs, to stimulate multilateral trade.

Department representatives expressed concern that this proposal would be unlikely to appeal readily to the Yugoslavs and might particularly prejudice the Trieste negotiation. The question of waiving the loan portion was therefore discussed. The Bureau of the Budget representative saw no preliminary objection to their granting a waiver, so long as they were assured as to the validity of the purposes for which the local currency would be used in Yugoslavia. The Budget representative also commented that the apparent view of FOA and USDA that Title I should be used for [Page 529] crop shortage ameliorization, instead of Title II, had a rather peculiar implication. The ODM urged the retention of the strategic materials provision, and mentioned that if lead and zinc could be bought, it would absorb some of these metals which might otherwise crowd the US stockpile market under the new program. Department representatives pointed out that this use of local currency would be very unattractive to the Yugoslavs.

At the close of the meeting, the matter was left that Mr. Leverich would get Mr. Murphy’s reaction to the proposal that, in addition to the 150,000 tons of wheat being furnished under MSA funds, 250,000 tons would be furnished under Title II,

  • 50% of the local currency for strategic materials;
  • 10% to cover Yugoslav transport costs;
  • 40% to be held in Yugoslavia for economic development,

so that, in effect, 50% would be repaid as a loan and 50% would be retained in Yugoslavia. Mr. Butz stated that Mr. Murphy might, as he saw fit, bargain in the 40–60% range about the 50–50 split.

Mr. Leverich repeated a previous statement, in which he was joined by the other Department representatives, that Mr. Murphy would not be in a position to negotiate percentages and similar detail matters should the wheat be offered under Title I. What Mr. Murphy requires is support for a general proposition for the supply of wheat which would appeal to the Yugoslavs and serve as an inducement to them to accept the proposed Trieste settlement. Mr. Leverich promised to be in touch with FOA and Agriculture representatives on further developments.


150,000 tons of wheat $11,500,000
250,000 tons of wheat about $18,750,000

If the wheat is distributed free or for payment in kind of work relief projects, the likelihood is that we could get approval for depositing counterpart to be waived. To the extent that Yugoslavia’s wheat requirements are to be used in this way, the tonnage estimated to be consumed under free distribution can probably be justified for Title II of the ATDA. Failing that, we could try to get a waiver of counterpart deposit under Title I.

  1. Drafted by Colbert.